What it means:

Typically, when ending stocks go down
it’s good news for prices. But in this case, there’s nothing good about it.

Yes,
new-crop ending stocks may be headed in the right direction (down), the first
such year-over-year drop since 2013-14. But the overriding factor here is
simply the massive supplies that figure to be on hand at the end of the 2019-20
marketing year regardless. It is absolutely unprecedented and sets up the very
real possibility we could go deeper into unchartered territory when the harvest
rolls off this fall.

More soy acres a possibility

Let’s
just consider the variables. First is the fact spring planting across the
American Midwest is lagging behind badly. As of May 12, less than one-third of
the American corn crop was in the ground – a time when two-thirds of the acres
would normally be seeded. The weather looks better for this week, but it’s safe
to assume that farmers will have to burn two or three days of that window of
opportunity just waiting for fields to dry. Meanwhile, wetter conditions are
forecast to return next week.

With
corn planting moving so slowly, it raises the increasing likelihood that at
least some intended corn acres will eventually get switched over to soybeans,
bumping up the 84.6 million acres the USDA originally said farmers would seed this
year to soybeans in its March prospective plantings report. Consider that the
largest recent decline in corn acres from March to June was nearly 1 million in
2010, another unusually wet year. In that same year, June soybean acres
increased 800,000 compared to March intentions.

Obviously
yields have a bigger say in terms of final overall production compared to the
number of acres planted, but a larger planted area will no doubt still add more
to the soy stockpile.

Trade and ASF complicate export outlook

Further,
trade uncertainties abound. In its first supply-demand outlook for 2019-20, the
USDA pegged expected exports at 1.95 billion bu, an increase of nearly 10% from
a year earlier. However, an argument can now be made that American export
prospects are dimmer after the US and Chinese governments exchanged new tit-for-tat
tariff increases over the past week or so.

The
USDA is optimistically projecting 2019-20 China soybean imports at 87 million
tonnes, an increase of 1 million from a year earlier. But if the US and China
fail to come to some trade agreement, American farmers may be facing a second
consecutive year when their largest traditional customer may be unwilling to
buy during the critical October-February period.

At
the same time, the 2019-20 soybean demand picture is being clouded by the
continued spread of African Swine Fever, particularly in China.

And
let’s not forget South America. The USDA is projecting 2019-20 Brazil soybean
production at a record 123 million tonnes, up 6 million from a year earlier and
more than enough to offset a projected 3-million tonne decline in Argentina
output to 53 million. Bigger production in South America means China has more
opportunity to replace US soy purchases.

At
the end of the day, the projected decline in 2019-20 US soybean ending stocks may
not ever come to pass. And if it does, stocks remain so heavy it may not make
much difference to prices anyway.

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